Question: 1. What is Schedule E net income (Rental income & Sub-S income)?

Paul found a renter for his father's house on August 1. The monthly rent is $600, and the lease agreement is for one year. The lease requires the tenant to pay the first and last months' rent and a $600 security deposit. The security deposit is to be returned at the end of the lease if the property is in good condition. On August 1, Paul received $1,800 from the tenant per the terms of the lease agreement. In November, the plumbing froze and several pipes burst. The tenant had the repairs made and paid the $300 bill. In December, he reduced his rental payment to $300 to compensate for the plumbing repairs. Paul provides you with the following additional information for the rental in the current year.

Property taxes $670

Other maintenance expenses 285

Insurance expense 495

Management fee 350

Depreciation (to be computed) ?

Local practice is to allocate 10 percent of the fair market value of the property to the land. (See 8 for basis information.) Paul makes all decisions with respect to the property. This rental activity qualifies as a trade or business under the Internal Revenue Code for purposes of the Qualified Business Income deduction.

On January 15, of the current year, Paul's father died. From his father's estate, he received stock valued at $30,000 (fathers basis was $12,000) and his father's house valued at $100,000 (fathers basis in the house was $55,000).In addition to the investments discussed above, Paul owns 1,000 shares (1%) of Grubstake Mining & Development common stock.

Grubstake is organized as an S corporation and has 100,000 shares outstanding. Grubstake reported taxable income of $200,000 and paid a distribution of $1.00 per share during the current year. Paul does not materially participate in Grubstake's activities.